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Foundations of Macroeconomics, 7e (Bade/Parkin)
Chapter 15 The Short-Run Policy Tradeof
15.1 The Short-Run Phillips Curve
1) If the economy is at full employment, then the unemployment rate
A) is greater than the natural unemployment rate.
B) is equal to the natural unemployment rate.
C) is below the natural unemployment rate.
D) can be anywhere on a short-run Phillips curve.
E) is equal to zero.
Skill: Level 4: Applying models
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
2) The short-run Phillips curve shows
A) potential GDP.
B) a tradeof between the unemployment rate and the inlation rate.
C) the natural unemployment rate.
D) the expected inlation rate.
E) a tradeof between real GDP and unemployment.
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
3) The short-run Phillips curve shows the relationship between the
A) natural unemployment rate and the expected inlation rate.
B) natural unemployment rate and the real interest rate.
C) inlation rate and the unemployment rate.
D) expected inlation rate and the unemployment rate.
E) inlation rate and the nominal interest rate.
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
1
4) The short-run Phillips curve is a curve that shows the relationship, other things being
constant, between ________ and ________.
A) the inlation rate; the unemployment rate
B) the unemployment rate; real GDP
C) potential GDP; the natural unemployment rate
D) the inlation rate; the expected inlation rate
E) the inlation rate; the nominal interest rate
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
5) The short-run Phillips curve shows the relationship between the inlation rate and the
unemployment rate when ________ remain(s) constant.
A) monetary policy
B) the natural unemployment rate and the expected inlation rate
C) iscal policy
D) interest rates
E) aggregate demand
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
6) The natural unemployment rate and the expected inlation rate are constant when
moving along the ________, which shows a tradeof between ________ and ________.
A) short-run Phillips curve; inlation; unemployment
B) aggregate demand curve; inlation; employment
C) aggregate supply curve; inlation; unemployment
D) long-run Phillips curve; inlation; unemployment
E) short-run Phillips curve; inlation; employment
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
2
7) The short-run Phillips curve illustrates ________ relationship between the unemployment
rate and the inlation rate.
A) a positive
B) a negative
C) a mixed
D) no
E) an upside-down U-shaped
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
8) The short-run Phillips curve is
A) downward sloping.
B) upward sloping.
C) vertical at a constant rate of unemployment.
D) horizontal at a constant rate of inlation.
E) U-shaped.
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
9) The short-run Phillips curve is ________ curve along which an increase in the
unemployment rate is associated with ________ in the inlation rate.
A) a vertical; no change
B) a downward sloping; a decrease
C) an upward sloping; an increase
D) a horizontal; no change
E) a downward sloping; no change
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
3
10) The tradeof exhibited by the short-run Phillips curve is
A) higher inlation with higher unemployment.
B) lower inlation with lower unemployment.
C) higher unemployment with lower inlation.
D) changing inlation with constant unemployment.
E) higher price level with lower real GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
11) Moving along the short-run Phillips curve, if ________ increases, then ________
decreases.
A) inlation; unemployment
B) inlation; the price level
C) inlation; real GDP
D) unemployment; the price level
E) unemployment; the expected inlation rate
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
12) Moving along the short-run Phillips curve, a ________ unemployment rate can only be
achieved by paying the cost of ________.
A) lower; a higher inlation rate
B) lower; a lower inlation rate
C) lower; a higher expected inlation rate
D) lower; a lower price level
E) higher; a higher inlation rate
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
4
13) During a recession, there is a(n) ________ the short-run Phillips curve, while during an
expansion there is a(n) ________ the short-run Phillips curve.
A) movement closer to; movement further from
B) downward movement along; upward movement along
C) upward movement along; downward movement along
D) rightward shift of; leftward shift of
E) leftward shift of; rightward shift of
Skill: Level 3: Using models
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
14) The curve shown in the igure above is the
A) aggregate demand curve.
B) aggregate supply curve.
C) demand for money curve.
D) Phillips curve.
E) potential GDP curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Analytical thinking
5
15) The short-run Phillips curve presents a tradeof because a
A) higher unemployment rate can be achieved at the cost of a higher inlation rate.
B) lower unemployment rate can be achieved at the cost of a lower inlation rate.
C) lower unemployment rate can be achieved at the cost of a higher inlation rate.
D) higher inlation leads to a higher nominal interest rate.
E) higher price level leads to a lower real GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
16) Along a short-run Phillips curve, the
A) short-run cost of lower unemployment is higher inlation.
B) short-run beneit of lower unemployment is lower inlation.
C) short-run cost of lower inlation is higher interest rates.
D) long-run cost of lower inlation is higher unemployment.
E) short-run cost of higher inlation is a higher real interest rate.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
17) The short-run Phillips curve is another way of looking at
A) aggregate demand.
B) aggregate supply.
C) the natural rate of unemployment.
D) Okun's Law as applied to aggregate demand.
E) potential GDP.
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
6
18) Comparing the aggregate supply curve and the short-run Phillips curve, we see that
they
A) each describe diferent parts of the economy.
B) both exist since money wages are lexible.
C) describe the same phenomena but contradict each other.
D) both exist because money wage rate is ixed in the short run.
E) both exist because real wage rate is ixed in the short run.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
19) ________ is ixed when moving along the aggregate supply curve.
A) The money wage rate
B) The real wage rate
C) Employment
D) Real GDP
E) The price level
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
20) Comparing the AS-AD model and the Phillips curve, we see that
A) they both are graphed as a relationship between the rate of inlation and the
unemployment rate.
B) the Phillips curve is graphed as a relationship between the price level and the
unemployment rate.
C) the AS-AD model is graphed as a relationship between the inlation rate and the rate of
real GDP.
D) the AS-AD model uses the price level and the Phillips curve uses the rate of inlation.
E) the AS-AD model uses the price level and the Phillips curve uses real GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
7
21) According to the AS-AD model, when real GDP exceeds potential GDP, the
unemployment rate is deinitely
A) less than the natural unemployment rate.
B) equal to the natural unemployment rate.
C) greater than the natural unemployment rate.
D) falling.
E) rising.
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
22) In the short run, if the economy is at full employment, then the quantity of real GDP
A) is equal to potential GDP, and the unemployment rate is equal to the natural
unemployment rate.
B) does not necessarily equal potential GDP, but the unemployment rate is equal to the
natural unemployment rate.
C) exceeds potential GDP, and the unemployment rate is less than the natural
unemployment rate.
D) is equal to potential GDP, but the unemployment rate is less than the natural
unemployment rate.
E) is equal to potential GDP, but the unemployment rate does not necessarily equal the
natural unemployment rate.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
23) If the economy is on its short-run Phillips curve at the natural unemployment rate, then
in the AS-AD model, real GDP is deinitely
A) less than potential GDP.
B) greater than potential GDP.
C) equal to potential GDP.
D) increasing.
E) decreasing.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
8
24) According to the AS-AD model, when real GDP is less than potential GDP, the
unemployment rate is deinitely
A) less than the natural unemployment rate.
B) equal to the natural unemployment rate.
C) greater than the natural unemployment rate.
D) falling.
E) rising.
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
25) The short-run tradeof between the unemployment rate and the inlation rate shown by
the Phillips curve is represented in the AS-AD model by
A) the upward-sloping aggregate supply curve.
B) the vertical potential GDP line.
C) the downward-sloping aggregate demand curve.
D) rightward shifts of the aggregate supply curve.
E) leftward shifts of the aggregate supply curve.
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
26) Moving upward along the aggregate supply curve is equivalent to
A) moving downward along the short-run Phillips curve.
B) moving upward along the short-run Phillips curve.
C) shifting the short-run Phillips curve rightward.
D) shifting the short-run Phillips curve leftward.
E) shifting the short-run Phillips curve upward.
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
9
27) Moving ________ the short-run Phillips curve is equivalent to moving ________.
A) downward along; downward along the aggregate demand curve
B) downward along; upward along the aggregate demand curve
C) upward along; upward along the aggregate supply curve
D) downward along; upward along the potential GDP line
E) downward along; downward along the potential GDP line
Skill: Level 2: Using deinitions
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
28) Okun's Law states that
A) supply creates its own demand.
B) as the real wage rate falls, the quantity of labor demanded increases.
C) as the unemployment rate rises, the inlation rate falls.
D) there is a relationship between the unemployment rate, real GDP, and potential GDP.
E) a higher inlation rate leads to a higher nominal interest rate.
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
29) Okun's Law says that the diference between the unemployment rate and the natural
unemployment rate determines
A) potential GDP.
B) real GDP.
C) the gap between potential GDP and real GDP.
D) the gap between the inlation rate and the unemployment rate.
E) the real interest rate.
Skill: Level 1: Deinition
Section: Checkpoint 15.1
Status: Old
AACSB: Relective thinking
10
